Ilham Aliyev announces tax amnesty (Our analysis)

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BY MAMMAD EFENDIYEV, ECONOMICS SECTION

Azerbaijan awaits an unprecedented tax amnesty. The Parliamentary Committee for Economic Policy, Industry and Enterprise has discussed the draft law 'On regulation of the tax debt existing as of 1 January 2017.' The draft law was developed on the initiative of President Ilham Aliyev.

In general, the bill is designed to stimulate the development of entrepreneurship, creation of a favourable business environment and the optimisation of the tax burden. For this purpose, the debts of taxpayers on interest accrued on the outstanding debt will be written off. In addition, the bill also provides for cancellation of financial sanctions. In principle, this step could be called a part of the wide-ranging economic reforms, which the head of state have recently been implementing, but given that the scale of the amnesty is so impressive it require a separate analysis.

It is hard to believe, but we are not talking about a couple dozens of millions of manats. Only as of December 1, according to the Chief of the Analysis and Oversight of Tax Risks Department of the Tax Ministry, Natiq Shirinov, the amount of tax debt in the country amounted to 1.527 billion manats. Moreover, of that amount, only 904.3 million manats comprise the principal amount of the tax debt. The remaining amount is the same financial penalties (237.1 million manats) and accrued interest (386.4 million manats). The head of state intends to release Azerbaijani taxpayers precisely from these penalties and interest.

As you can see, we are talking about hundreds of millions of manats and hundreds of thousands of taxpayers. It would seem that the calculation of arrears and their partial writing-off should take a long time, not to mention the various bureaucratic obstacles. In addition, all taxpayers cannot be fit into the same pattern; such a delicate matter requires a well thought-out differentiated approach, including taking into account regional specifics. If we talk about the distribution of a tax debt by region, interest arrears in Baku account for 288.3 million manats, while all other regions of the country is only 98 million manats. And financial sanctions, these amount respectively 138.5 million manats in Baku and 98.5 million manats in the regions.

However, the president proposes a very simple mechanism for mutual settlement of tax officers with the population. Thus, according to the bill, if a taxpayer by early next year pays 30% of the financial sanctions, the remaining 70% of the debt will be written off. Upon payment in the first two months of the next year of 50% of the debt, the remaining half of the amount owed will also be written-off. Well, if a taxpayer so for some reason hesitates with payment, then in March, he/she will have to pay 70% of the tax debt to be released from payment of the remaining 30% of the accumulated debts or sanctions. The same conditions also apply to tax debts unpaid as of 1 January 2017, which had been considered by the courts.

At the same time, the debt accrued interest, available in the individual taxpayers' tally sheet as of 1 January 2017, and on the financial sanctions, will be written-off by the relevant executive authorities. In fact, such a body will be the Ministry of Taxes, which means the ministry will bear a huge responsibility. It goes without saying that taxpayers will look for any opportunity to get rid of the accumulated debt at the lowest cost. The bill, however, spells out clearly, but few loopholes can be found if needed. So, apparently, the course of such a large-scale tax amnesty will be closely monitored.

Thus, even by the most superficial calculations, as a result of the tax amnesty, at the disposal of entrepreneurs will be about 600 million manats, most of which would be invested in the economy. But even more than these hundreds of millions of manats, the economy will benefit from improving the efficiency of the same taxpayers, who really feel the support of the state. As a result, each amnestied manat may soon bring the budget 2,3, even more manats. Here is the essence of the discussed tax amnesty.

It has already been felt by the deputies, who recommend the bill to be discussed at the plenary session of the Parliament. MPs note that this amnesty will actually weaken the tax burden. But at the same time offered to extend the maturities of financial sanctions. According to them, the first quarter of the year is the most difficult time for the financial system and the financial markets.

Financing to large taxpayers, especially those related to the state budget, is released after March 15. And only one, say, JSC Azersu (one of the biggest tax evaders in the public sector) owes 20.8 million manats in back taxes, and 2.2 million manats in financial sanctions.

That is why MPs proposed to extend the deadlines specified in the bill not to three, but up to six months, so there will be no problems with the collection. And, most importantly, one needs to ensure that after the tax amnesty new tax debts do not accumulate again to be written off all over again. And no less interesting is, that the deputies, who usually make unflattering comments about the media, this time have encouraged the Ministry of Taxes to work closely with news agencies and Internet sites to better illuminate the changes made to the laws, including about taxes. It looks that the deputies have very much liked a lot of work done in the last year by the ministry.